"Thank you for inviting me to discuss one of the most important
subjects associated with enactment of the Energy Policy Act of
2005, namely the establishment of enforceable reliability standards.
The reliability provisions of the Energy Policy Act were among
the most significant provisions of the new law.

"The Act gave the Commission important new responsibilities
to approve mandatory reliability standards and ensure that they
are properly enforced. We are mindful of that duty as we issue
rules to implement the new law. Our purpose is to faithfully execute
the law in the manner Congress intended.

"The Commission is moving swiftly to issue final rules to
certify an Electric Reliability Organization (ERO), establish
reliability standards, and provide for enforcement of those standards.
Three weeks after the Energy Policy Act was signed into law, the
Commission issued its proposed rule to implement the reliability
provisions. We will issue a final rule by the deadline established
by Congress. This is one of our top priorities. The final rule
will be faithful to clear Congressional intent manifested in the
plain words and structure of the law.

"The Energy Policy Act gives the Commission the important
duty of assuring the reliability of the bulk power system. We
will exercise that duty by certifying an ERO, carefully reviewing
reliability standards, approving standards that provide for reliable
operation of the bulk power system, remanding those that do not,
and working to improve reliability standards over time. We will
also ensure that reliability standards are properly enforced,
including, where appropriate, through regional enforcement of
such standards.

Role of Electric Reliability Organization

"It is critical that the ERO be a strong organization. A
strong ERO will be one that maintains its independence, is adequately
staffed to perform its important functions, and exercises careful
oversight of the actions of regional entities. Regional entities
will perform certain important functions pursuant to delegation
agreements, including proposing reliability standards and undertaking
enforcement action. However, the ERO must exercise close oversight
in these areas to ensure that any proposed standards adequately
maintain reliability and do not burden other regions, and that
regional enforcement programs are of the highest quality.

"Clear Congressional intent is a strong ERO and deference
to the ERO by the Commission. I want the ERO to be a strong organization.
I encourage you, as NERC prepares an application for ERO certification,
to focus on ways to realize this vision, particularly in the area
of developing an effective oversight role as it relates to regional
entities.

Establishment of Enforceable Reliability Standards

"I am committed to faithfully implementing the Energy Policy
Act in the manner Congress intended. The law does not provide
for absolute uniformity in reliability standards, or a "one size
fits all" approach. That much is clear from the plain words and
structure of the law. Under the Energy Policy Act, regional entities
will propose regional standards or variances to the ERO, which
can then propose to the Commission those regional standards that
it has approved. Congress would not have provided for consideration
of regional standards or variances if it had intended a "one size
fits all" approach.

"We had both North American and regional reliability standards
before enactment of the Energy Policy Act. I expect that we would
continue to have both North American and regional reliability
standards after issuance of the final rule.

"The Energy Policy Act provides for delegation of enforcement
authority to regional entities that meet certain statutory tests.
The Act also includes special provisions applicable to interconnection-wide
entities and establishes a rebuttable presumption in favor of
such entities.

"The law requires the ERO to rebuttably presume that regional
standards or variances proposed by regional entities organized
on an interconnection-wide basis meet the statutory standard.
It also provides that the Commission will give greater deference
to the technical expertise of regional entities organized on an
interconnection-wide basis than other regional entities. Regional
standards and variances proposed by other regional entities have
no such presumption or deference.

"Under the law, the Commission must approve any reliability
standard before it becomes enforceable. I am operating under the
expectation that it is the Version 0 standards that will be proposed
to the Commission for its consideration and review. In the proposed
rule, the Commission interpreted the Energy Policy Act to permit
the ERO applicant or applicants to propose reliability standards
in their certification application. We did that in order to accelerate
establishment of enforceable reliability standards.

"In anticipation of the filing of Version 0 standards, the
Commission has been conducting a constructive review of existing
reliability standards. We have been examining the existing Version
0 standards and the relationship of Version 0 standards to regional
standards.

"That process has been instructive. We have learned that
a significant portion of NERC's existing standards - about 25
percent - are in the form of obligations for the regional reliability
organization to define regional criteria and procedures necessary
to implement the NERC reliability standard. This is particularly
true in certain subject areas, such as system planning. In addition,
some regional variances have been incorporated into NERC reliability
standards when necessary to address physical differences of the
interconnections or market protocols used in organized markets.

"We have a legal duty under the Energy Policy Act to assure
that proposed reliability standards "provide for reliable operation
of the bulk power system." To me, that means carefully reviewing
proposed reliability standards and assuring they have technical
support and are written so that they are enforceable against "all
users, owners, and operators of the bulk power system," as the
law provides. We will, of course, give "due weight" to the technical
expertise of the ERO and regional entities organized on an interconnection-wide
basis. However, if we determine that a particular standard does
not meet statutory requirements, we will not hesitate to take
action, such as remanding such standards to the ERO. In addition,
in circumstances where a particular standard requires improvement,
we will consider whether to grant "conditional" approval of that
standard so that it can be enforced during the period when the
Commission or ERO is considering appropriate revisions to strengthen
it. We also may seek to identify the need for reliability standards
outside the scope of the Version 0 standards.

"In order to help the Commission discharge its legal duty
to review proposed reliability standards, I have directed Commission
staff to hold a series of technical conferences with industry
and stakeholders to review Version 0 standards and regional reliability
standards in advance of a filing of reliability standards by an
ERO applicant or applicants. My purpose is a thorough and expedited
review of proposed reliability standards and accelerated establishment
of enforceable reliability standards.

"With respect to delegation agreements, I encourage the ERO
applicant or applicants to develop uniform delegation agreements
to the greatest extent possible. I do that for practical reasons;
the submission of widely varying delegation agreements will likely
delay consideration of these agreements by the Commission. Any
such delay would require the ERO to enforce established reliability
standards, rather than regional entities. Delegation agreements
would compete for Commission resources with the ERO certification
filing and reliability standards submission, if all three are
tied together. Delegation agreements should not circumscribe ERO
review of regional standards or variances in a manner that is
inconsistent with statutory requirements.

"In conclusion, the Commission's goal is to faithfully execute
the law in the manner Congress intended. We are faithfully implementing
the reliability provisions of the Energy Policy Act, and moving
swiftly to meet the aggressive deadlines in the law.